Loan Without CIBIL Score: Big Relief for First-Time Borrowers – Finance Ministry's New Announcement

Loan News: If you're planning to take a loan for the first time, there's good news for you. The Finance Ministry has clarified that first-time borrowers will no longer be denied loans solely due to the absence of a CIBIL score. In response to a query in the Lok Sabha during the Monsoon Session, Pankaj Chaudhary, the Minister of State for Finance, stated that the Reserve Bank of India (RBI) has instructed banks and financial institutions not to reject loan applications from new borrowers just because they lack a credit history. Key Highlights:

First-Time Borrowers Can Get Loans Without CIBIL Score

• Pankaj Chaudhary mentioned that, under best practices, the RBI has advised financial institutions not to reject first-time loan applicants solely due to the absence of a credit history.

No Minimum CIBIL Score Required

• The minister emphasized that RBI has not set any minimum credit score for borrowers. The decision to approve loans is based on policies established by the bank's board, as well as regulatory guidelines. The CIBIL score is just one of the inputs considered in the overall loan decision-making process.

What is CIBIL Score?

• A CIBIL score is a three-digit number between 300 and 900, which reflects an individual's creditworthiness. This score is determined by the Credit Information Bureau (India) Limited (CIBIL), based on factors like payment history, active loans, and financial discipline. It is widely used by banks to assess eligibility for loans.

• CIBIL Score and Loan Approval: Typically, a higher CIBIL score (closer to 900) increases your chances of loan approval. However, under the new rules, a lack of CIBIL score or a low score will not automatically disqualify first-time borrowers from obtaining a loan.

The Need for Thorough Verification:

• Despite the relaxation regarding the CIBIL score, the Finance Ministry has directed banks to conduct a thorough verification before approving loans. This includes:

  • Checking payment patterns,

  • Analyzing settled or restructured loans,

  • Identifying defaults or write-offs.

• Additionally, Credit Information Companies (CICs) can charge a fee of up to ₹100 for providing an individual's credit report.

Summary:

In a move to ease access to credit for first-time borrowers, the Finance Ministry and RBI have relaxed the requirement for a CIBIL score, allowing new borrowers to apply for loans without one. However, financial institutions must still carry out a thorough background check to assess the borrower's repayment history and financial behavior.